Crédit Mutuel AM: Monthly commentary on subordinated debt

December 5, 2025

By Paul Gurzal, Co-Head of Fixed Income and Jérémie Boudinet, Head of Financial and Subordinated Debt, Crédit Mutuel Asset Management

Market Environment

November was a somewhat turbulent month for subordinated debt, reacting to the volatility in equity markets.

All EUR iBoxx subordinated debt segments posted a combined performance between -0.15% and -0.05% in November, ending the month on a positive note, after the first half of the month had been marked by a downward trend in prices.

Unusually for this year, € AT1s underperformed the iBoxx Liquid High Yield index this month (-0.05% vs. +0.24%), indicating a currently stronger correlation between AT1s and equity markets, and therefore greater volatility.

The primary market was very active, with some issuers even displaying a sense of urgency. They may have been planning to issue in January but ultimately preferred to bring forward their plans, given the continued strong demand.

Regarding bank debt, the trend is towards a proliferation of new issues from Central and Eastern European countries. Romania's largest bank by assets, Banca Transilvania, issued an inaugural €500 million AT1€ bond with a 7.125% coupon for a 5.5-year call maturity, attracting over €2.5 billion in demand.

In the senior non-preferred market, Romania's second-largest bank and subsidiary of Erste Group, Banca Comerciala Romana, had begun a "non-deal roadshow" to present itself to Western European investors, which turned into a "deal roadshow," with a SNP priced at MS+165bp, representing a yield of 4.08% for a 6NC5 maturity.

There was also the inaugural AT1 issue by NLB, Slovenia's largest bank, which holds approximately 30% of the market share in its country. NLB managed to place its bonds with a 6.5% coupon, despite Slovenian authorities imposing a 25% withholding tax on coupon payments (a portion of which can be reclaimed through specific forms), a unique practice in Europe.

By adjusting the coupon rate to account for this withholding tax, the bond was able to be issued under conditions similar to those of a high-quality Western European bond. These issues signal that the momentum remains favorable for primary issuances, which still offer potential for further compression, although we consider current levels to be relatively tight in terms of relative value.

The Bundesbank and the Bank for International Settlements (BIS) published research papers within a few days of each other suggesting a review of the structure of bank bond issuances.

The observation stems once again from the chaotic management of the impairment of Credit Suisse's AT1s in 2023, which could justify transforming the issuance format, either by recognizing its usefulness only in the event of resolution (like Tier 2s, which are not intended to be impaired during the bank's lifetime), or by replacing AT1s with something else. These are only study papers, but it's clear that the regulatory authorities are uncomfortable with the lawsuits brought by Credit Suisse AT1 holders.

The momentum for a review of the instruments is increasing, but it remains a long way off, as the Basel Committee has not yet begun any discussions (a prerequisite for an international agreement), and the finalization of the Basel III rules is already becoming distant. Europe is seeking a solution to the significantly increased complexity of its capital and debt structure but has not yet found one.